USDA Acreage and Quarterly Grain Stocks Reports, June 30, University of Tennessee Extension Aaron Smith and Chuck Danehower

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1 Market Reaction USDA Acreage and Quarterly Grain Stocks Reports, June 30, 2015 University of Tennessee Extension Aaron Smith and Chuck Danehower On Tuesday June 30 th the USDA surprised the market releasing decidedly bullish estimates for corn, soybeans, cotton, and wheat. The Acreage report provided the primary catalyst for corn and cotton price increases. The Quarterly Stocks report keyed the increase in soybean futures. Weather remains on everyone s mind as excessive rain in many areas has: delayed wheat harvest; prevented corn, soybean, and cotton plantings; and adversely affected crop conditions. As we move forward, weather will be the primary market driver. The question to be determined is which direction will the market (and weather) go from here? Corn: September corn closed at $4.22 up 30 ½ cents. Soybeans: November soybeans closed at $10.37 ¼, up 57 cents. Cotton: December cotton closed at 67.91, up 0.69 cents. Wheat: July (2016) wheat closed at $6.26 ¼, up 28 ½ cents. USDA Acreage Summary Corn planted area for all purposes in 2015 is estimated at 88.9 million acres, down 2 percent from last year. This represents the lowest planted acreage in the in the United States since Soybean planted area for 2015 is estimated at a record high 85.1 million acres, up 2 percent from last year. Area for harvest, at 84.4 million acres, is also up 2 percent from 2014 and will be a record high, if realized. Record high planted acreage is estimated in Kentucky, Minnesota, Ohio, Pennsylvania, and Wisconsin. All wheat planted area for 2015 is estimated at 56.1 million acres, down 1 percent from The 2015 winter wheat planted area, at 40.6 million acres, is down 4 percent from last year and down less than 1 percent from the previous estimate. Of this total, about 29.6 million acres are Hard Red Winter, 7.61 million acres are Soft Red Winter, and 3.44 million acres are White Winter. Area planted to other spring wheat for 2015 is estimated at 13.5 million acres, up4 percent from Of this total, about 12.6 million acres are Hard Red Spring wheat. Durum planted area for 2015 is estimated at 1.95 million acres, up 40 percent from the previous year. All cotton planted area for 2015 is estimated at 9.0 million acres, 18 percent below last year. Upland area is estimated at 8.85 million acres, down 18 percent from American Pima area is estimated at 148,000 acres, down 23 percent from 2014.

2 Table 1. Acreage Planted U.S. and Tennessee, Commodity U.S Avg. % Change '14 to '15 Corn 88,192 91,936 97,291 95,365 90,597 88,897 92,676-2% Soybeans 77,404 75,046 77,198 76,840 83,701 85,139 78,038 2% Wheat 52,620 54,277 55,294 56,236 56,822 56,079 55,050-1% Cotton 10,974 14,735 12,264 10,407 11,037 8,998 11,884-18% Tennessee Corn , % Soybeans 1,450 1,290 1,260 1,580 1,640 1,850 1,444 13% Wheat % Cotton % USDA Quarterly Grain Stocks Summary Corn stocks in all positions on June 1, 2015 totaled 4.45 billion bushels, up 15 percent from June 1, Of the total stocks, 2.28 billion bushels are stored on farms, up 22 percent from a year earlier. Off-farm stocks, at 2.17 billion bushels, are up 9 percent from a year ago. The March - May 2015 indicated disappearance is 3.30 billion bushels, compared with 3.16 billion bushels during the same period last year. Soybeans stored in all positions on June 1, 2015 totaled 625 million bushels, up 54 percent from June 1, On-farm stocks totaled 246 million bushels, up 126 percent from a year ago. Offfarm stocks, at 379 million bushels, are up 28 percent from a year ago. Indicated disappearance for the March - May 2015 quarter totaled 701 million bushels, up 19 percent from the same period a year earlier. Old crop all wheat stored in all positions on June 1, 2015 totaled 753 million bushels, up 28 percent from a year ago. On-farm stocks are estimated at 155 million bushels, up 60 percent from last year. Off-farm stocks, at 597 million bushels, are up 21 percent from a year ago. The March - May 2015 indicated disappearance is 388 million bushels, down 17 percent from the same period a year earlier. Grain sorghum stored in all positions on June 1, 2015 totaled 33.2 million bushels, down 64 percent from a year ago. On-farm stocks, at 2.92 million bushels, are down 35 percent from last year. Off-farm stocks, at 30.3 million bushels, are down 66 percent from June 1, The March - May 2015 indicated disappearance from all positions is 86.7 million bushels, up 4 percent from the same period last year.

3 Table 2. Grain Stocks by Position 2014 and 2015, U.S On Off Total All On Off Total All Date Farms Farms Positions Farms Farms Positions (1,000 bushels) Corn 1-Mar 3,860,500 3,147,623 7,008,123 4,380,000 3,369,806 7,749,806 1-Jun 1,863,200 1,988,516 3,851,716 2,275,000 2,171,701 4,446,701 1-Sep 462, ,904 1,231,904 1-Dec 7,087,000 4,124,380 11,211,380 Sorghum 1-Mar 15, , ,734 9, , ,856 1-Jun 4,500 87,924 92,424 2,920 30,285 33,205 1-Sep 1,945 32,087 34,032 1-Dec 30, , ,594 All Wheat 1-Mar 237, ,435 1,056, , ,697 1,140,407 1-Jun 96, , , , , ,636 1-Sep 713,450 1,193,770 1,907,220 1-Dec 472,800 1,056,830 1,529,630 Soybeans 1-Mar 381, , , , ,399 1,326,599 1-Jun 109, , , , , ,404 1-Sep 21,325 70,666 91,991 1-Dec 1,218,000 1,309,744 2,527,744

4 2015 Estimated Returns Non-Irrigated The profitability outlook has been updated after the release of the June 30, 2015 USDA Acreage & Grain Stocks reports. The profitability outlook has improved but continues to project tight to negative margins. Since the June 10 th WASDE report, estimated forward prices for booking have increased $1.09 bushel for soybeans, $0.63 bushel for corn, $0.46 bushel for grain sorghum, and $0.77 bushel for wheat. I would like to point out the cotton price of 70 cents that is being used in the profitability outlook. I would guess that there has been very little cotton priced for The price of 70 cents is made up of a cash price of cents and gin rebates (seed & hauling) of 7-8 cents. The cash price of cents is composed of a loan rate of 52 cents or 53 cents with a slight premium and a 10 cent equity from the buyer. This 70 cent price has been used for the last few months even while cotton prices have changed up and down. Basically, this is a result of the way the cotton marketing loan program works. As long as cotton prices stay in a roughly cent December futures range, cotton equities most likely will stay in that 10 cent range. My observations and discussions with cotton buyers would indicate that if futures move above cents, then the prices to the producers would start to move up penny for penny. Producers might also want to consider locking in at least the basis on grain sorghum. Producers should look at these returns as what could be if no adjustments are made in their operation and consider it a warning sign that adjustments will need to be made in 2015 to be sustainable. These estimates do not consider any USDA or crop insurance payments from the new farm bill. Please contact your local County Extension office or Area Specialist Farm Management for assistance in developing your own budget or farm financial plan. This table below should be used as a guide as yields, prices, and expenses will vary among producers and locations. Expenses will vary among producers and production systems. Cotton prices include revenue for cottonseed and hauling. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: Cotton - $ 120, Soybeans - $43, Corn - $161 (includes 170 units of N), Milo - $103, and Wheat/Soybeans - $117. Cost of production will continue to be adjusted as information becomes available. Weed control costs with resistant weeds have also been difficult to estimate. These costs will vary greatly among producers and individual fields. Production costs are estimates based on the 2015 University of Tennessee Crop Budgets with adjustments made where needed. Please visit with your farm supplier on estimated cost in your area. Producers with owned land and or cash rent can use Returns Over Variable as a guide in decision making. Producers with share rent ground should use Returns Over Variable and Land Costs as a guide with their appropriate share rent calculated. A land cost of 25% of revenue minus 25% of crop insurance cost is used in the table as a guide or method of comparison and should not be construed as the appropriate rent for a particular area. Producers who are not making major equipment changes can use UT budgets and this table as a guide in developing their own cropping decision budgets. If equipment changes are being made, then a whole farm financial plan would be better suited as a decision aid.

5 2015 Estimated Returns Non-Irrigated Cotton Soybeans Corn Milo Wheat/Soybeans Yield 864 lbs. 42 bu. 131 bu. 85 bu. 71 bu./30 bu. Price (as of 7/1/15) $0.70 lb. $10.26 bu. $4.23 bu. $4.60 bu. $5.85 bu./$10.26 bu. Revenue $605 $431 $554 $391 $723 Variable Expenses $459 $285 $412 $234 $448 Returns Over Variable $146 $146 $142 $157 $275 Land Costs (25% of Revenue-25% crop insurance) Returns Over Variable and Land Costs Fixed Costs Depreciation & interest on machinery $149 $105 $135 $97 $177 -$3 $41 $7 $60` $33 $142 $76 $73 $69 $107 Returns Over Specified Costs -$145 -$35 -$66 -$9 -$8 Breakeven Price at Average Yield and Specified Cost $0.87 $11.09 $4.73 $4.71 $5.85/$10.61

6 2015 Estimated Returns Irrigated As with dryland production, lower prices have squeezed profit margins in the irrigated crops creating negative margins for all crops considering variable, land and fixed cost. Producers should look at these returns as what could be if no adjustments are made in their operation and consider it a warning sign that adjustments will need to be made in 2015 to be sustainable. The table below is an estimate of returns for crops under irrigation. Since irrigated yields are not as of yet kept separate in Tennessee, yields below are an estimate of irrigated yields. Irrigation fixed costs and energy costs will vary greatly among producers and systems. These projections include in variable expenses energy costs for irrigation of $21 per acre and $11 per acre of irrigation repairs and maintenance. Fixed costs of $88 per acre for irrigation equipment are used. Please contact your local County Extension office or Area Specialist Farm Management for assistance in developing your own budget or farm financial plan. This table below should be used as a guide as yields, prices, and expenses will vary among producers and locations. Expenses will vary among producers and production systems. Cotton prices include revenue for cottonseed and hauling. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: Cotton - $ 125, Soybeans - $43, Corn - $206 (includes 225 units of N), Milo - $135, and Wheat/Soybeans - $117. Cost of production will continue to be adjusted as information becomes available. Weed control costs with resistant weeds have also been difficult to estimate. These costs will vary greatly among producers and individual fields. Production costs are estimates based on the 2015 University of Tennessee Crop Budgets with adjustments made where needed. Please visit with your farm supplier on estimated cost in your area. Producers with owned land and or cash rent can use Returns Over Variable and Fixed IR Costs as a guide in decision making. Producers with share rent ground should use Returns Over Variable, Fixed IR Costs and Land Costs as a guide with their appropriate share rent calculated. A land cost of 25% of revenue minus 25% of crop insurance cost minus 25% of the irrigation equipment fixed cost is used in the table as a guide or method of comparison and should not be construed as the appropriate rent for a particular area. A management cost of $30 per acre is included in Fixed Costs management labor, depreciation & interest on machinery. This is an additional $15 above the dryland crop management labor. Producers who are not making major equipment changes can use UT budgets and this table as a guide in developing their own cropping decision budgets. If equipment changes are being made, then a whole farm financial plan would be better suited as a decision aid.

7 2015 Estimated Returns - Irrigated Cotton Soybeans Corn Milo Wheat/Soybeans Yield 1100 lbs. 60 bu. 190 bu. 130 bu. 71 bu./45 bu. Price (as of 7/1/15) $0.70 lb. $10.26 bu. $4.23 bu. $4.60 bu. $5.85 bu./$10.26 bu. Revenue $770 $616 $804 $598 $877 Variable Expenses( include energy cost) $502 $317 $504 $300 $481 Fixed Irrigation Costs per Acre $88 $88 $88 $88 $88 Returns Over Variable & Fixed IR Costs $180 $211 $212 $210 $308 Land Costs (25% of Revenue-25% crop insurance-25% fixed irrigation costs) $168 $130 $176 $127 $193 Returns Over Variable, IR Fixed Cost and Land Costs Fixed Costs- management labor, depreciation & interest on machinery $12 $81 $36 $83 $115 $151 $91 $86 $84 $122 Returns Over Specified Costs -$139 -$10 -$50 -$1 -$7 Breakeven Price at Average Yield and Specified Cost $0.83 $10.42 $4.49 $4.60 $5.85/$10.74